V. Discussion
PG&E and IEP urge the Commission to adopt the Settlement Agreement and Associated Amendments and pursuant to Rule 51.1(e) find that it is "reasonable in light of the whole record, consistent with the law, and in the public interest."
As moving parties present, the QF issues in R.04-04-003 and R.04-04-025 have been the subject of extensive discovery, settlement negotiations, mediation sessions, testimony, briefs and evidentiary hearings with cross-examination. The QF Switcher issues from R.99-11-022 have been addressed by briefs in that proceeding. PG&E and IEP have been strong adversaries and at opposite sides of the QF issue. Therefore, from the Commission's perspective, if these two adversaries can put together a negotiated settlement, it meets the reasonableness test. While not all QFs in PG&E's service territory have signed the Settlement Agreement, the fact that such a large percentage, just over 50%, have signed it attests to its reasonableness from the QF perspective, as well as the utility's.
Numerous QF representatives filed comments indicating that they had no objection to the Settlement, but were very concerned that the Commission not be influenced by the Settlement terms when it was deciding the remaining issues in the proceeding. In particular, parties asked the Commission to factor in that 107 of the settling parties are renewable QFs, whereas only 14 settling QFs are cogenerators. Some of the representatives allege that some of the particular terms in the Settlement agreement, such as the term of the contracts, the heat rate, and waiver of the right to enforce the must-offer' obligation from the Public Utility Regulatory Policies Act of 1978 (PURPA), while acceptable to many renewable QFs, could be fatal to the continuation of some gas-fired QFs. Many of the settlement terms are in fact antithetical to the litigation position taken by the non-settling parties.
Some of the factors that have fueled the long and vitriolic dispute between all the utilities and all the QFs in general, and between PG&E and IEP specifically, are the federal and state requirements and the different sides' interpretation of those legal mandates. However, if PG&E and IEP voluntarily agree to prices and terms, there is no contravention of either federal or state law. PG&E and IEP also contend that their settlement is consistent with Commission precedent since the price in the Amendment is consistent with a fixed price option authorized by the Commission in D.01-06-015. In addition, on the QF Switcher issue, Settling Parties argue that it is properly within the Commission's domain to decide just and reasonable prices, as it will when it issues a decision in R.99-11-022. Therefore, it is reasonable if PG&E and IEP reach an agreement on the QF Switcher price and reduce the litigation risk of waiting for the Commission's final decision.
Settling Parties also contend that the Settlement Agreement will benefit the public since it reasonably balances competing issues and reaches a result whereby ratepayers will be paying less for energy. Particularly, under the terms of the settlement, payments for energy will be reduced with an all-in annual heat rate for gas-fired QFs of 8,700 Btu/kWh plus a $2/MWh variable O&M adder. The Settling Parties contend that this will result in lower payments for energy and that the energy price will more closely reflect short-term energy prices in the market.
Non-gas fueled QFs, including renewables, will receive a five-year fixed energy price of $64.50/MWh, with a 1% annual escalation. This price is 15% below PG&E's current5 posted SRAC price and 45% below the formula yielded SRAC price for January 2006. PG&E also requests that full credit for renewable QF purchases count for the RPS goal.
Under the Settlement Agreement, Standard Offer No. 1 as-delivered capacity payments are reduced by 27%, taking the PPAs from $68.27/kW-year to $50/kW-year. Settling Parties's request that PG&E receive capacity credit. This will also benefit ratepayers since they will get the capacity benefit of the as-delivered capacity payments they are making.
QFs also agree that when the PPAs they execute pursuant to the Settlement Agreement expire, their only mandatory purchase entitlement under PURPA6 shall be to (1) participate in PG&E's solicitations, (2) execute a year-to-year PPA with PG&E at market based pricing, or (3) negotiate a mutually acceptable bilateral agreement.
Finally, ratepayers will receive an explicit energy price reduction of $.90/MWh for PG&E's claims on the QF Switcher issue.
When all of the above cost savings are viewed as a whole, ratepayers of PG&E will pay less for the energy PG&E receives from QFs signing the Amendment. Even though the signing QFs do not represent all of the QFs selling power to PG&E, the reduction in energy payments made possible by the Settlement is anticipated to be between $100-$200 million annually, depending on how many QFs ultimately execute the Amendment. This savings will significantly benefit PG&E customers. In addition, PG&E and the settling QFs have planned for and contracted for a competitive mechanism to direct future utility/QF dealings. PG&E and IEP agree that SRAC pricing should transition to a market-based mechanism, if and when the Commission determines that the CAISO day-ahead energy market, or an equivalent market, is functioning properly.
5 April 2006.
6 The Public Utility Regulatory Policies Act of 1978, as modified and amended.
